And yet, despite high-volume of high-level media coverage, none of the stories have picked up on a very basic – yet very key – fact…

The bailout being developed is as much for Germany as it is for Greece.

Let me explain …

Moody's Corp. (NYSE: MCO) yesterday (Thursday) cut Greece's debt rating one notch, from A2 to A3, and said further downgrades are likely – this after The European Union's (EU) statistical authority cast fresh doubt on the accuracy of Greece's financial reports and said the country's 2009 budget deficit was larger than originally reported.

In its semiannual report on EU debt and deficit, Eurostat said Greece's 2009 budget deficit was $43 billion (32.3 billion euros), or 13.6% of its gross domestic product (GDP). However, the agency noted that it still doesn't have confidence in the new figure, which it said could actually be above 14%. Greece had estimated the deficit at 12.7%.

It may be just a matter of days before Greece asks for a bailout, given these fresh developments.

European governments have offered Greece a rescue package worth up to $45 billion. Most of the funds, which would trigger only upon Greece's request for help, would be in the form of loans with below-market interest rates. As a start, Greece would be able to borrow for three years at around 5%, which is sharply below the 6.9% they are paying now for their sovereign debt. Another $15 billion in loans and assistance would come from the International Monetary Fund (IMF).

It's nice that they came up with something, but this package is a joke. It's far less than Greece would need in the event of a genuine default by at least 3-times, but the European elite wants to make it look as if they are doing something.

This announcement in a videoconference last Sunday wasn't much different than what we already knew from a March 25 statement, but finance ministers contended that the latest plan has more substance than prior assurances. The key difference is that this time, Germany has dropped its demand that Greece pay market rates for the loans.

While the backup plan appears more solid, the big question remains whether Greece will ask for it to be triggered. Since the market is now charging Greece two percentage points more than the Eurozone is offering, it would seem normal for Athens politicians to take the deal immediately. Yet their pride will likely delay the decision, possibly until it's too late.

Here's why: There is still a big question as to whether the public in Germany and France are willing to let these guarantees be made by their leaders. Germany contributes about a third of all Eurozone capital, so it has the most to lose if Greece should default on these loans. The German parliament must approve the deal, so there are many political and legal hurdles that remain. In short, it's a "non-deal deal" in that there are strings attached that could be pulled to unravel it if Greece comes calling.

I encourage you to see this latest news not as a rescue for Greece, but as a rescue for Greek debt holders worldwide. Greece is not going to disappear as a country no matter what happens. But if a default is declared, it's the debt holders that are hurt. So all of this maneuvering must be seen in the same context as the bank bailouts in the United States: much more vital for ex-buyers than ex-sellers.

Make no mistake: This is precisely why I say that this would be a bailout of Germany, not Greece.

Argentina is always cited as an example of a country that suffered tremendous pain in the wake of a default. And in a sense it did; Buenos Aires has been shut out of global capital markets for a decade since it defaulted on $82 billion in sovereign debt in December 2001. But guess what? Argentina still exists, and life goes on. It's foreign debt holders who lost the most.

Last week, a column in The Economist asked how much pain might actually occur if Greece were to default. In theory, it should be as costly as it was to Argentina but that has not been the case historically, for the most part.

The Economist reported on an IMF study that counted 257 sovereign defaults from 1824 to 2004. There were 74 from 1981 to 1990 alone. Most suffered far less than Argentina, as the majority were able to reenter international capital markets once a credit restructuring was complete — much like a bankrupt company in the United States can be reborn in months after debts are extinguished.

The IMF data showed that the only lasting effect was a big four percentage-point increase in bond spreads in the first year, and 2.5 percentage points in the second year. The study showed that spreads were largely unaffected after that.

So while the potential for a Greek default has been described as the end of the world for Europe, it really might not even be the end of the world for Greece. If this is true, then it's the angry credit holders – who should have accepted risk in making their decision to invest there – that are making the most fuss.

The bottom line: A case can be made for the notion that all the concern over Greek debt is a ruse manufactured to stampede governments into bailing out private investors. In this context, it's easy to see that the deal will probably be done on some level. But if it's not, don't except Armageddon. Expect an orderly unwinding that will be painful to some investors but probably not the global financial system, as interconnected as it may be.

Any suggestions other than these will fail. And don't give me any sh*t about gold being a "barbaric relic". You Keynesian idiots are the ones who got us into this. One hundred years ago they told you this would happen in the long run……here we are in the "Long Run". Thanks.

My apologies to Greece. My point was they are f**k*d and the only way out is through hard work. Their engineers will have to engineer better. Their cabbies will have to polish their cabs a bit brighter. They could turn this thing around in 6 months but not through whining. Sorry if that offends. It offends me to be inundated with their problems every time I turn on the t.v. As to the point about a gold standard, the Greeks would be the first to benefit from gold backed paper. Enough said. Austrian Economics is the financial system of the past and of the future. Keynes "floating" paper experiment was an experiment gone wrong. It was well intended but it went horribly wrong.

Dear Royce,
Step 1) We do work dear, but we are also known as great lovers… ask your wives and girlfriends
Step 2) Gold backed money was abandoned, so that protestants in US and UK can usurp peoples monies
Step 3) No matter how many you hang, there is not enough rope. Capitalism and speculation are built in the human DNA
Step 4) We can always return to barter trading, environmental friendly and "fair"

BTW why do you think that an element with 79 protons in its nucleus, atomic Mass 196.96655 amu and melting Point: 1064.43 °C is of any use as a "safe standard"?

Dear Christos,
You are clever…..I will have to be crafty to lure you into the light. Here goes! Money has to be 4 things. Portable, divisible, universally accepted, & reliable store of value. Gold (the element) is all 4 of these. Gold is also indestructible. Unbacked paper money is not universally accepted in most cases and is certainly not a reliable store of value. A dollar is worth about .15 cents from when Nixon ended gold convertibility. Fiat money is an unmitigated disaster! "Gold has no nationality" – French President Charles Degaule. In fact the founders of the USA had it (gold) written into their constitution to serve as a protection against future empirical governments. To put it simply, they saw it had failed in the past and the crack ups had been immense and caused great suffering to the citizens. The United States had 2 centuries of unheard-of- growth while on a gold standard. Regarding your statement as to why the gold standard was abandoned…WTF? It was abandoned so Richard Nixon could turn on a printing press to pay for the Viet Nam war! It was continued to feed a growing welfare state….or that's what my wife's Greek lover tells me. Regarding the hangings; I'm all for a peaceful dismantling of the Federal Reserve. Phone up Ben and tell him he needs to be out by Friday. Leave the keys under the mat. History shows that scenario unlikely, though possible. Finally regarding you comment on capitalism an speculation. Again WTF are you talking about? We can keep using the money in our pockets for all the speculation we desire. If you want a bank to exchange your cash profits to gold coin they'll simply do it. Up until 1964 you could slap a 10 dollar bill on the bank counter and they'de slide you $10 worth of silver quarters, dimes, whatever. There was plenty of speculation going on (roaring 20's). "Gold stands as a protector of property" – Alan Greenspan 1966/The Objectivist Magazine. Dear Christos, I sooooo hope you read this. Perhaps we can meet after the revolution and play kissy-koo.! But for now buy some gold and silver coins and hope I'm wrong. This will end badly.

One last thing…..I'm pretty sure the atomic mass of gold is 196.96654
but you may be right. My regards.

It's not so simple. Speaking about some kind of redistribution of the wealth though painful
for some investors one should never forget at the same time about the necessity to create the wealth. The situation may come to a point when solely the redistribution efforts could't garantee the economic and social stability in Europe.

Now that's news.The Greek bailout is for Germany!
I suppose that future bailouts of other PIIGS will also be for Germany's sake? All of a sudden the burning of German made cars by Greeks demonstrating against German reluctance to a bailout of their country makes sense! If the next candidates in the bailout line adopt the same procedure ,Germany might be enchanted to bear the main load of those bills as well. German tax payers should gladly shoulder the debt! After all ir would be for Germany!
Greece's deficit has been gradually increasing and before this soap-opera ends there is further discovery of hidden debts in the cards.
In my humble opinion it would be better for all to end the pain rather than face pain without end.

5) beware of Greeks like Turks they love Germans because they don't have to feel guilty about their complicity in branding the JEWS the Christ killers … still part of their liturgy so let the empire of Constantine/Rome finally fall so that the real new world order can emerge from this dung heap!

There is a strong argument for now allowing Greece to leave the EU monetary system and allow it to float the drachma. "Leaving" could have several conditions that protect as far as possible the remaining EU countries, and Greece itself.

The argument about the bail out being for creditors, not just debtors, makes sense. However, sending another dime there until they agree to be accountable by 1st world accounting standards & criteria by which the the taps can be promptly turned off is just plain dumb.
However, it has to be clear that creditors are not trying to impose external political philosophies. This can't look like political conservatives trying to destroy a relatively socialist system. As a sovereign nation, they can pension people at 55 or buy them pet polar bears or camels or whatever so long as they understand they have to pay for them. External bailouts imposing external values often appear to be imperialism and leave fertile ground for what is going on in multiple South American nations.

Matthew, you are correct. But the foundation of socialism is other people's money. Socialists never want to contribute THEIR money, out of principle and because they usually do not admit to having any. There is always "the rich" – a group of people who have money that the socialst would prefer to spend on their behalf. So no, the Greeks are not going to understand why their early retirement and generous pensions are going to be torn up. They will need someone to blame for it.

David, a good idea but….Euroland is constructed on the Hotel California principle. "You can check out any time you like, but you can never leave." Reinvention of the drachma – how in detail will the rate be set and what happens if the Greek businesses refuse to accept it? How do you confiscate peoples' holdings of Euros and replace them with Drachma?

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